As S&P 500 companies increasingly move to tie executive compensation to environmental, social and governance metrics, experts caution that pay incentives alone cannot drive the changes needed for companies to attain their ESG goals.

More than half (57%) of S&P 500 companies, such as investment management company T. Rowe Price, Valero Energy and health insurance giant Humana, have incorporated ESG in their annual or long-term executive compensation plans in 2020, according to executive compensation consulting firm Semler Brossy Consulting Group…The different strategic goals tied to executive pay by companies can be separated into two major categories: operational, day-to-day business activities associated with product quality and employee safety issues, and in the second group, ESG metrics associated with matters including carbon emissions and diversity, equity and inclusion. A closer look shows that operational issues such as safety and customer satisfaction were more likely to be used as weighted metrics in leaders’ pay packages in 2020. Metrics in the sustainability category (which, for the study, incorporates environmental and social metrics) were more likely to be used as a scorecard or modifier or as individual performance factors. Among these, DE&I matters were the most popular metric, with 28% of companies highlighting the recruitment, retention and promotion of diverse staff in their executive pay.

Agenda – ESG Metrics Not Enough to Drive ‘Real Change,’ Say Experts